China Faces Test With Potential Corporate Bond Default

Government and Banks Have Stepped in to Avoid Past Failures

BEIJING—The first potential default in China's fast-growing corporate bond market offers a test of whether Beijing will allow a long-taboo practice as it seeks to rein in runaway credit: corporate failures.

A deeply indebted Shanghai solar-equipment maker late Tuesday warned that it won't be able to meet interest payments totaling 89.8 million yuan ($14.7 million) due on Friday on a bond sold two years ago, citing a cash squeeze and...